By ParcelHero’s head of consumer research David Jinks
“Kwasi Kwarteng’s mini-budget caused market chaos last month, driving down the FTSE 100 and pound while raising interest rates. Delivered just over three weeks later, new chancellor Jeremy Hunt’s emergency statement has dismantled most of Kwarteng’s plans. However, this handbrake-turn will not be pain-free for British businesses.
“Clearly, restoring market stability amid soaring government borrowing and interest rates was vital. There seems to have been a relatively positive reaction so far, with both the pound and stock markets initially climbing. That may ease the immediate pressure on retailers and UK manufacturing.
“Businesses are already reeling from the corporation tax chaos. The on-off-on rise of this tax on businesses, from 19 per cent to 25 per cent, has caused significant confusion. MHA, the network of independent regional accountancy firms, says the restoration of the tax increase is a “big blow” for businesses and the U-turn is a “significant setback”.
“A number of other handbrake-turns from last month’s mini-budget will also have a significant impact on retailers. Abandoning plans to scrap VAT paid by foreign visitors in UK stores will not please those eagerly anticipating a spending spree from wealthy US and Middle Eastern shoppers. The Association of International Retail says the original scrapping of tax-free shopping back in 2019 cost 20,000 jobs and lost a significant amount of the £28.4 billion foreign visitors spent in the UK annually. Retailers and their logistics partners have seen a great opportunity for renewed growth snatched away from them.
“Similarly, in terms of energy price caps, it looks as if there will be a lot less support for businesses than hoped for beyond April. Hunt said that any continued support for businesses will only be targeted on those most affected, and that any further measures will be focussed on increasing energy efficiency. That’s bad news for traditional, high-energy use manufacturers and their transport partners.
“Retailers and manufacturers will also be very concerned about the strong possibility that consumers will draw in their horns even further following the chancellor scrapping of energy price guarantees for households beyond April. Any further energy capping will be subject to a Treasury-led review. That’s not going to do much to restore consumer confidence in the medium term. The scrapping of the planned cut in the basic rate of income tax from 20 per cent to 19 per cent will also discourage shoppers from putting their hands in their pockets.
“The statement ruthlessly dismantled most of the policies unveiled in September’s mini-budget, but it could be tough medicine for UK retailers, manufacturers and their supply chain and logistics partners. Something needed to be done following the shambles of September’s mini-budget, but it could still be a rocky road ahead.”
ParcelHero’s 2030: Death of the High Street report reveals that, unless retailers develop an omni-channel approach, the high street as we know it will reach a dead-end. Read the full report here.